When "Lindy" was trying to figure out the implications of the latest divorce settlement offer that she received from her soon-to-be ex-husband "Ted," she panicked. She would have asked her lawyer for guidance, as 79% of divorcing individuals end up doing, but she was not sure that her lawyer could give her the guidance she needed.
The previous offer had come two days before their last court appearance. There was just not enough time to understand the implications of the various components of the offer and assess whether it was an equitable division of marital assets. Lindy was just too nervous to make the decision "on the steps of the courthouse," so she said no.
Clearly, there is something wrong with a process in which the financial outcome is so critical to both parties but people like Lindy and Ted get no professional financial support despite spending substantial sums of money litigating a divorce. Yet it is not surprising. The financial issues of divorce, including shorter-term tax issues and longer-term financial planning issues, have become terribly complex. Divorce lawyers have enough on their hands with the legal issues of divorce. Increasingly, they are unable to counsel their clients in depth on the financial implications of divorce, which inevitably have a lasting impact on their quality of life and stability long after the divorce itself is finalized.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
According to a recent survey conducted by the Institute of Divorce Financial Analysts, 75% of respondents believe that a divorce financial specialist would have been helpful in the preparation, negotiation or recovery phases of their divorces. According to this same survey, 45% of people litigating their divorces felt unprepared to enter financial negotiations, and 40% of those mediating their divorces feel the same way.
No wonder divorce financial planning has risen as a specialty. Professionals dedicated to meeting the needs of divorcing individuals can help people such as Lindy and Ted understand the financial issues of divorce, negotiate settlements and recover into a financially stable post-divorce life.
In Lindy's case, she was fortunate to be referred to a divorce financial planner by a divorce coach. Divorce financial planners build on financial expertise often acquired by certified financial planners (CFP) or certified public accountants (CPAs). They also often hold the certified divorce financial analyst (CDFA) designation. They excel in their ability to simplify the complex financial issues of divorce so that people like Lindy and Ted can understand the consequences of their decisions and plan accordingly for their separate futures. In addition, divorce financial planners bring to the table an understanding of tax issues in divorce, employee stock options, retirement plans, pension plans, Social Security, real estate and long-term financial planning. They help assess potential outcomes of strategies such as trading home equity for ownership of retirement accounts—is that a good idea for you for the long term?
As with other financial specialists, divorcing couples and individuals are usually better off picking a fee-only divorce financial planner who will have his or her clients' best interests at heart. A great resource to find one is Association of Divorce Financial Planners (ADFP).
In Lindy's case, the new offer seemed to address her needs better. Ted offered to give Lindy more of the 401(k) in exchange for keeping his pension. In addition, Ted offered more alimony. However, Ted's offer was still not clear about his employee stock options, as he did not know how to value them. Plus, the offer did not address the issue of college funding for their 13-year-old daughter.
Lindy's divorce financial planner carefully reviewed the settlement offer in light of her individual circumstances, explained the various issues and made recommendations for her lawyer.
After some more negotiations, Lindy and Ted were able to come to an agreement and avoid a costly trial. Even Lindy's lawyer was happy with the process, as it helped him to focus on his area of expertise: writing the agreement and managing the legal process.
Chris Chen, CFP®, CDFA, is the founder of Insight Financial Strategists, LLC, a fee only investment advisory firm in Waltham, Mass. He specializes in retirement planning and divorce financial planning for professionals and business owners. Chris is a member of the Financial Planning Association and the Massachusetts Council on Family Mediation. He is on the Board of Directors of the Association of Divorce Financial Planners.
-
Ask the Editor — Tax Questions on "The One Big Beautiful Bill Act"Ask the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on the new tax law.
-
The Anti-Prime Day Deals Guide to Everyday Essentials Worth Stocking up on at Walmart, Target and Sam's ClubSkip Amazon and shop these anti-Prime Day deals at Walmart, Target or Sam's Club to save on all of your household essentials.
-
I'm a Financial Planner: Here Are Some Long-Term Care Insurance Tips for Every AgeStrategies include adding riders to life insurance for younger individuals and considering hybrid or traditional long-term care policies for those in their mid-50s and 60s.
-
Engineering Reliable Retirement Income in 2025: An Expert GuideFor dependable income, consider using a bucket strategy and annuities in tandem to promote structure, flexibility and peace of mind.
-
Crazy Markets Shouldn't Derail Your Retirement if You Follow This Financial Pro's PlanBeing nervous about retiring in a volatile market is a red flag that you're relying too heavily on your investment portfolio, rather than a comprehensive plan.
-
Key to Financial Peace of Mind: Think 'What's Next?' Rather Than 'What If?'Even if you've hit your magic number for retirement, it's hard to stop worrying about money. Giving it a clear purpose is one way to reduce financial anxiety.
-
Three Estate Planning Documents a Business Owner Can't Afford to SkipA business owner's estate plan should protect the company and its employees as well as the entrepreneur's heirs. These three documents are critical.
-
Financial Fact vs Fiction: Why Your 'Magic Number' Isn't Actually MagicalDo you think you're diversified if you're invested in the S&P 500 and Nasdaq? Do you think your tax rate will fall in retirement? Think again — and read on for other myths that could be leading you astray.
-
Opportunity Zones: An Expert Guide to the Changes in the One Big Beautiful BillThe law makes opportunity zones permanent, creates enhanced tax benefits for rural investments and opens up new strategies for investors to combine community development with significant tax advantages.
-
Five Ways Retirees Can Keep Perspective Through Market JittersMarket volatility is a recurring event with historical precedents (the dot-com bubble, global financial crisis and pandemic), each followed by recovery. Here's how people who are near or in retirement can navigate economic uncertainty.
